In a previous blog post, I discussed how Ronnie Screwvala, founder of entertainment giant UTV, which was recently gobbled up by Disney, has made a few investments through his private equity company Unilazer that have caught some attention lately.
In that post, I looked at Ronnie's investment in Zivame, a lingerie site. In this post, I want to look at why Ronnie decided to invest in Ek Stop, a Mumbai-based online grocery site, in which he put up a 25 percent stake. The exact amount invested isn't known, but last August, Ek Stop's CEO and co-founder Sumat Chopra told VCCircle that it was close to raising $2.5 million in a Series A funding round.
In the world of internet business, online grocery stores loom large because of how quickly they tanked in the US — most exemplified by WebVan, a US-based entity that, according to reports, went from being a $1.2 billion company employing 4,500 people to vaporizing into thin air within just two years.
There are very sound reasons for why online grocery investments seem like a bad idea. For one thing, humans are creatures of habit, used to the tactile experience of picking out fresh vegetables and fruits personally. Doing it over the net may seem absurd to Indians who are used to vegetable carts coming to their doorsteps, where the ritual of discussing the day's choices and squabbling over prices is a sacrosanct one.
Also, shopping tends to be a social experience. Many actually like the process of going to a neighbourhood grocery store or a large supermarket and wandering the aisles, contemplating the purchase of a new pickle or a different brand of basmati rice. And those who don't call in for their products from neighbourhood kirana stores anyway. Then again, we never thought the look, feel, and smell of a book could ever be replaced. Still, the biggest reason for the tenuous existence of online grocery stores to date comes down to pure economics.
As an online outfit, you need to charge the same sales tax as an offline one that's saddled with all the headaches and costs of warehousing, managing working capital, establishing sound delivery processes in traffic-choked cities, and other logistics headaches — all pricey stuff to undertake, thanks to the wafer-thin margins this business gives you. Notice how e-tailers like Flipkart have switched with alacrity from warehousing their own goods to a marketplace model?
But it's not all bad. Indians are increasingly shifting from joint families to nuclear ones where both the husband and wife work long hours — and so having even dry goods like cereal and detergent delivered to your doorstep at cheaper rates than your neighbourhood grocer (while getting a better range of products) is an attractive proposition.
Moreover, online grocery seems to be evolving. Salt n Soap is a Kolkata-based outfit that has apparently pioneered the concept of "open analytics" in this space where customers can instantly summon a variety of data on a product like its market share, purchasing trends, and a comparison with what people in the same socio-economic class are buying. The site also lets you know when it thinks a particular product has run out, thanks to some nifty code, and pings you so you're reminded to buy more of it.
If Ronnie's Ek Stop is able to innovate along these lines and offer great service (and even quality produce), he may just have a shot at luring some Indians away from their doorstep-arriving veggie carts and kirana store orders towards their computer mouses and track pads.